Due to the vast number of industries that exist, it is impossible to list every single business expense. However, there is a comprehensive list of common IRS business expense categories applicable to most businesses. In addition, streamlining the process of tracking your business expenses will ensure that you don’t miss out on any tax deductions.
Accounting software like QuickBooks can help you to manage your business expenses throughout the year. With QuickBooks, you can track all of your business expenses by taking a snapshot of receipts with the mobile app or connecting your bank and credit card accounts to QuickBooks. Sign up for your free 30-day trial of QuickBooks so you can see how easy it is to keep track of all of your business finances.
What a Business Expense Category Is
A business expense category is an organized way to group expenses for tax reporting purposes. It’s important to know what type of expenses are included or not included in a category in order to apply the appropriate rules when it comes to deducting them on your tax return.
Instead of providing a master list that includes everything a business can deduct, the IRS has defined a business expense as anything that incurs a “cost of carrying on a trade or business.”
The only other requirements set by the IRS are that your business expenses are “ordinary and necessary.”
The IRS defines ordinary and necessary business expenses as follows:
“An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
One of the most comprehensive resources on what business expenses are, the qualifications that must be met and what is and is not deductible is IRS Pub 535: Business Expenses. In the table below, we have included most of the expenses in this publication along with examples and the tax form that you would claim the deduction on.
- A list of the most common business expense categories
- Examples of what type of business expenses are deductible in each category
- Examples of nondeductible business expenses by category
- The tax form you need to complete to claim the deduction
As part of our research, we also spoke with tax experts like Shauna Wekherlien with Tax Goddess Business Services to ensure we have included the most up-to-date information.
35 IRS Business Expense Category List
As discussed, it’s impossible to cover every type of deductible business expense. However, we have selected the most common business expense categories identified by the IRS. Below, you will find a detailed description of what’s included in each business expense category and how to qualify for the tax deduction.
Listed below is a list of 35 IRS business expense category list and how you can qualify for them:
1. Employee wages: You can deduct gross wages, salary, commission bonuses or other compensation paid to your employees. This also includes payments made to a spouse or children, provided they are on the payroll.
2. Employee education expenses: Payments made to employees for reimbursement of tuition, books and other materials are deductible.
3. Employee benefits: Payments made on behalf of employees to cover the following programs are tax-deductible:
- Accident and health plans
- Adoption assistance
- Cafeteria plans
- Dependent care assistance
- Life insurance
4. Rent or lease payments: Payments made to rent office space, equipment, a warehouse for inventory and supplies or vehicle lease payments are all tax-deductible. However, if you own property or have equity or title to the property, you cannot deduct these payments.
5. Taxes for leased business property: Taxes paid to a lessor on leased office space, equipment and vehicles used for business purposes are a deductible business expense.
6. Business interest on the debt for trade or business: Interest payments made on all loans, lines of credit and other liabilities incurred for your trade or business are tax-deductible. Interest on income tax debt, loans with respect to life insurance and interest on personal credit cards and loans are not deductible business expenses.
7. Payroll taxes: Employment taxes paid on behalf of your employees is a deductible business expense. This includes Social Security and Medicare as well as federal and state unemployment taxes.
8. Excise taxes: If you purchase alcohol, tobacco or fuel for your business, you may be required to pay excise taxes. The good news is that you can deduct excise taxes on your tax return. To learn more about how excise taxes work, check out our Excise Tax guide.
9. Personal property taxes: Personal property taxes are not only applied to personal property like your vehicle or home but also to business property. For a business, personal property is defined as anything that can be removed from the business without damage to it. Some examples of personal property are office furniture and machinery and equipment.
10. Insurance premiums: Premiums paid to protect your business against loss or theft are deductible business expenses. This includes, but is not limited, to the following:
- Natural disasters like hurricanes, earthquakes and floods
- Business bad debt
- Liability insurance
- Workers’ compensation insurance
- Life insurance
- Insurance on vehicles used for business
11. Self-employed health insurance: Payments made for medical, dental and qualified long-term care insurance for yourself, your spouse and your dependents are deductible business expenses.
12. Business startup costs and organizational costs: Costs incurred to get your business up and running are deductible business expenses. Within the first year, you can deduct up to $5,000 for startup costs and $5,000 for organizational costs. Any amount of more than $5,000 can be amortized during a 15-year period.
13. Bad business debts: Any amounts that you have been unable to collect payment from a customer is considered to be bad debt and is a deductible business expense. While it may not be possible to prevent bad debt, check out our guide on How to Ask for Payment in an Email to learn how to avoid bad debts.
14. Travel, meals and entertainment to employees: reimbursement to employees for travel, meals, lodging and entertainment for business travel are deductible. To learn how to manage employee expenses, check out our Employee Expense Management guide.
15. Advertising and marketing costs: Expenses incurred to promote your business are deductible business expenses. This includes, but is not limited to, business cards, flyers, website and fees paid to companies like Constant Contact to send promotional emails.
16. Car and truck expenses: If you use your vehicle for business, you can deduct the portion that you use the vehicle for business, no personal use. There is a standard mileage rate that you can use, or you can deduct vehicle-related expenses like gas, repairs, car wash and parking fees and tolls. To learn how to calculate your vehicle deduction, check out our auto deduction guide for more details.
17. Charitable contributions: A business can deduct up to 50 percent of their gross income as charitable contributions. However, be sure to adhere to the following guidelines:
- For contributions of $250 or more, you must obtain a letter from the organization that includes the amount of the gift and whether or not you received any goods or services in exchange for the donation.
- Volunteered services are not deductible; however, you can deduct costs incurred while volunteering like supplies purchased
- Mileage incurred while volunteering is deductible at 14 cents per mile for 2017
- Donations of goods, services or property are deductible
18. Club dues and membership fees: Membership dues paid to the Chamber of Commerce and other professional/trade associations of which you are a member are deductible business expenses. Keep in mind that fees paid for the following are not tax-deductible:
- Country clubs
- Golf and athletic clubs
- Hotel clubs
- Sporting clubs
- Airline clubs
19. Franchise, trademark and trade name: Fees paid to purchase a franchise, trademark or trade name are tax-deductible business expenses.
20. Interview expense allowances: Any payments made on behalf of a prospective employee during the interview process are deductible business expenses. This includes travel costs like airfare and lodging for candidates who are out of town as well as parking fees or other costs. Meals are also deductible up to 50 percent of the cost.
21. Legal and professional fees: Payments made to attorneys, CPAs, financial planners or other professionals for your business are deductible business expenses.
22. Tax preparation fees: Fees paid to a tax preparer to prepare your tax return are tax-deductible. If you prepare your own taxes using tax software like TurboTax, the amounts paid to purchase the software and e-file your federal and state tax returns are also deductible business expenses.
23. License and permits: Payments for a business license, liquor license, realtor license and other permits required for your trade or business are all tax-deductible business expenses.
24. Penalties and fines: Penalties paid for late performance or nonperformance of a contract. For example, let’s say a contractor is scheduled to complete a job by a certain date but is delayed and does not complete the job in time. If the contractor is subject to a fine for each day the project exceeds the agreed-upon due date, that fine is a deductible business expense.
25. Repairs: Minor repairs to your office such as painting and plumbing leaks are deductible business expenses. However, major repairs that will increase the value of the property are subject to depreciation, for example putting in a brand new roof or a brand new central air and heating system.
26. Subscriptions: Subscriptions to magazines and journals that are related to your business are tax-deductible. Personal magazine subscriptions are not tax-deductible.
27. Supplies and materials: Supplies use in your business are tax-deductible. This includes, but is not limited to, the following:
- Ink for printer
- Pens, pencils and notepads
- Cleaning supplies
- Books and manuals
28. Utilities: Payments made for electricity, telephone and gas for your office space are deductible business expenses.
29. Telephone: Monthly service fees paid for telephone service in a commercial office space are tax-deductible. If you have a home office, you are not allowed to deduct the basic telephone service charges and taxes for the first line in your home. However, any subsequent telephone lines added for business use are deductible business expenses.
30. Depreciable assets: Purchases made for furniture, equipment and machinery typically must be depreciated over the number of years they are expected to last. However, under an IRS code titled Section 179, you may be able to deduct 100 percent of depreciable assets in the year they were purchased. For 2017, you can deduct up to $500,000 and, for 2018, it doubles to $1 million.
31. Payments to 1099 contractors: Payments made to independent contractors that provide goods and services to your business are tax-deductible. This includes but is not limited to payments to bookkeepers, virtual assistants and web designers.
32. Home office: If you have a home office, you may be eligible to deduct a portion of your household expenses based on the percentage that you use your home for business. This includes, but is not limited to, the following:
- Real estate taxes
- Deductible mortgage interest
33. Client gifts: You can deduct up to $25 for each client gift that you purchase. This can include gift card purchases, gift baskets or other items.
34. Continuing education: You can deduct payments for registration fees and materials for seminars and courses that you and your employees attend as part of continuing education credits for your trade or business.
35. 401(k) plan contributions: Most expenses of administering a 401(k) or other employer-sponsored retirement plan are typically tax-deductible. Most often with 401(k)s, expenses are paid out of plan assets and, because plan assets are mostly comprised of tax-deductible contributions, these expenses are therefore tax-deductible.
3 Ways to Organize Deductible Business Expenses
To ensure you don’t miss out on taking any legitimate business tax deductions that you may qualify for you need to organize your business expenses. Many businesses miss out on legitimate tax deductions because they have receipts all over the place like in glove boxes, shoeboxes or desk drawers. Implementing a system to keep track of expenses will make tax time simple.
You can organize your business expenses in three primary ways; accounting software, prepaid credit cards or business credit cards:
1. Use Accounting Software to Organize Deductible Business Expenses
Out of the three ways you can manage your deductible business expenses, accounting software is the best. As you might have guessed, this is because accounting software goes well beyond organizing your receipts to having the ability to manage all of your business finances like invoicing customers, paying bills, keeping track of bank and credit cards and generating financial statements.
Using QuickBooks to Manage Business Expenses
QuickBooks is our top recommended accounting software for small businesses. It is affordable, user-friendly and in addition to helping you manage your expenses, you can manage your entire business using it; including accounts receivable, accounts payable and access detailed financial reports with just a few clicks.
Three ways QuickBooks will help you organize your business expenses are:
- Connect your bank and credit card accounts: You can connect your bank and credit card accounts to QuickBooks Online so that all of your transactions download into the software on a daily basis. This will ensure that all expenses paid with your debit/credit cards will be accounted for.
- Scan receipts using the QuickBooks Online app: With the QuickBooks Online app, you can take a snapshot of your receipts for purchases that you make. The data from the QuickBooks Online app will automatically sync with your QuickBooks Online account so that you can record the transaction easily and attach the digital receipt.
- Enter and pay vendor supplier bills: QuickBooks allows you to manage the outstanding amounts that you owe vendor suppliers. This includes entering bills and paying them via check, online or with a credit card. By paying bills through QuickBooks, the expense is recorded in your financial statements automatically.
You can try all of the cool features that we’ve mentioned by signing up for your QuickBooks account. Sign up for a free 30-day trial and start using it right away to manage your business income and receipts. After the trial is over, you will need to sign up for a paid account to continue using the product.
Using FreshBooks to Manage Business Expenses
If the revenue you generate is based solely on billable hours, FreshBooks might be a better option for you. It has a robust invoicing feature that allows you to create custom invoices, email them to your customers and even accept online payments! The project management feature in FreshBooks will help you stay on top of billed versus unbilled hours so you can easily transfer unbilled hours to an invoice.
A couple of ways that FreshBooks can help you to manage your business expenses are:
- Connect your bank and credit card accounts: Similar to QuickBooks, you can connect all of your bank and credit card accounts to FreshBooks so that all of your transactions automatically download into your FreshBooks account. By doing this, your financial statements will always be up-to-date with your most recent purchases.
- Scan receipts using FreshBooks mobile app: Similar to QuickBooks, FreshBooks has a mobile app that you can download and use to take pictures of your receipts, and they will automatically sync with your FreshBooks account. All of your receipts are securely stored in the cloud.
Take FreshBooks for a test drive to check it out for yourself. You can use FreshBooks for free during the first 30 days. After the trial ends, you will need to sign up for a paid subscription to continue using it; plans start at $15 per month.
2. Utilize Prepaid Credit Cards to Organize Deductible Business Expenses
Prepaid credit cards are another way to stay on top of business expenses. If you have employees that incur travel and other business-related expenses, you can issue them a prepaid credit card that they can use to pay for those expenses.
There are a number of benefits of using prepaid credit cards, including:
- Able to set spending limits by person, expense category, merchant and time period
- You can turn a card on or off at any time
- Able to set alerts based on dollar amount, type of expense, merchant and so on
You can access detailed spend reports that can be filtered by person, merchant or amount. Bento also integrates with QuickBooks Online which means you can easily download transactions purchased with a Bento card into your QuickBooks Online account.
Unlike credit cards, Bento does not have an impact on the owner’s credit score nor does it affect the employee’s credit line. Give Bento a try to see how easy it is to manage your business expenses. Sign up, and you will receive the first two cards for free.
3. Use Business Credit Cards to Organize Deductible Business Expenses
Business credit cards are another great way to streamline your business expenses. Similar to prepaid cards, you can access detailed reports that can be filtered by merchant, items purchased and credit card holder. Unlike prepaid cards, you can earn cash back on just about every purchase that you make.
Listed below are some of the benefits of using business credit cards:
- You can set up alerts for a specific dollar amount or type of purchase made
- Detailed statements for each card are available online to review at any time
- You can connect your credit card account to accounting software like FreshBooks and QuickBooks, so transactions download automatically
Find the perfect small business credit card for you by visiting our searchable credit card marketplace. Take advantage of the 0 percent introductory offers, cash back or travel rewards, no annual fees, bonus offers and more.
Frequently Asked Questions (FAQs) About Business Expense Categories
We have included answers to the most frequently asked questions about business expenses. If you don’t see your question, head over to our FitSmallBusiness forum and post your question. We will be happy to answer your questions. Many of our FitSmallBusiness readers are also professionals like attorneys, accountants and tax experts, and they will typically weigh in on questions posted in our forum.
What Can Be Written Off as a Business Expense?
While the IRS does provide some guidance and a comprehensive list of common deductible business expenses, there is no way to give you a list of all deductible business expenses. In general, if an expense is ordinary and necessary in order for you to conduct business, it can be written off as a business expense.
What Are Examples of Business Expenses?
Some examples of the most common business expenses include:
- Home office expenses such as a portion of utilities, real estate taxes and repairs
- Business travel expenses, including lodging, airfare and Uber/Lyft transportation
- Fixed assets such as equipment, furniture and machinery
- Auto expenses such as mileage, gas and repairs
What Can’t Be Written Off as a Business Expense?
A good rule of thumb when it comes to what you cannot write off as a business expense is anything that is considered or can be interpreted to be a personal expense. While we can’t list out every expense that is not deductible, we have provided you with a few examples:
Here are just some of the business expenses that cannot be written off as tax deductions:
- Interest paid on a personal credit card
- Mileage driven for personal use like shuttling kids to and from school, grocery shopping and so on
- Deductions not related to your home office like lawn care and pool service
- All business meals, the IRS limits you to a maximum of 50 percent on meals and entertainment
Can You Deduct Job Expenses?
In the past, employees could deduct the cost of job-related expenses that an employer did not reimburse them for. In order to take the deduction, these costs had to be at least 2 percent or more of their gross income. Under the new tax code, employees are no longer allowed certain miscellaneous tax deductions.
Some examples of unreimbursed job expense that are no longer deductible include:
- Nurses and health care professionals can no longer write off their scrubs
- Sales representatives can’t deduct travel expenses
- College professors can no longer deduct research costs
The Bottom Line
Now that you have a handy checklist that includes the common IRS business expense categories, a brief description and the tax form to complete, it’s time for you to decide how to track expenses during the year. As discussed, we recommend that you use accounting software like QuickBooks Online. We have a free QuickBooks course that you can take to learn how to use QuickBooks.
In addition to keeping track of your business expenses, you can track income, bank and credit card accounts, store digital receipts and run detailed financial statements in just a few clicks. Sign up for QuickBooks to qualify for up to 50 percent discount off a paid subscription; plans start at $20 per month.